Bonds Plummet on Rate Cut Expectations

Bonds fell further today, marking this week as a significant retreat from
3-year highs hit last week. Traders sold bonds this week on anticipation of a
rate cut to come next Tuesday. The Fed’s last announcement of the year comes
that day, and traders have already priced in the effects of a rate cut into bond
prices, which is why there was some profit-taking this week. Bonds typically
rise on economic weakness and fall on strength, so it’s clear that traders have
braced themselves for more negative action heading into the new year.

The yen continued to fall across the board today, as investors sell yen for
more profitable and riskier assets. In the so-called carry trade, investors
borrow yen to buy more profitable investments. The yen will then rally on equity
weakness, as traders get out, and fall on equity strength, as traders get in.
The carry trade has been the most influential yen mover in the past few months.
The dollar was slightly lower versus the euro today, because most of the action
concerned the yen.

Crude oil futures sank over 2.5%, after a sizeable rally yesterday. Today,
traders sold energy on speculation that U.S. reserves for crude and natural gas
are sufficient to make it through the winter safely. Crude hit new highs
repeatedly over a number of weeks, pushing to just pennies away from $100 a
barrel. Traders were concerned that high demand levels would outpace supplies,
but slowing economic growth in the U.S. helped to ease those worries. Natural
gas also fell more than 2% today.

Gold futures fell today, in line with a strengthening dollar and falling oil
prices. Gold futures normally trade inversely to the dollar and with crude oil,
and that is exactly what happened today. Traders sold gold in the face of
falling energy prices and dollar gains over the yen. Copper futures jumped over

Grains were higher today. Soybeans rose nearly 2%, while corn rallied just
over 1%.

Stocks paused after days of solid gains and a strong non-farm payrolls
report this morning that dampened hopes of a 50 basis point rate cut when the
Federal Open Market Committee meets early next week. Click

to read the rest of today’s

Stock Market Recap

Economic News

The U.S. added more jobs than expected in